Malta Tax Services & Advisory - GVZH Advocates

How does Malta’s tax rate for foreign shareholders actually work?

Malta taxes companies at a headline 35% corporate rate, but its full imputation system allows shareholders to claim a refund of tax paid by the company on distributed profits. For most trading income distributed to non-resident shareholders, the standard 6/7ths refund may be availed of upon distribution of a dividend. This is a refund mechanism built into the tax system and is not a special low-tax regime or an exemption. The full 35% is paid first, then refunded on distribution. There is also an alternative under a fiscal unit of applying tax consolidation rules, paying tax at a rate of 5%.

What’s the difference between a trading company, a holding company, and the participation exemption?

A trading company earns active business income and is taxed as above, with shareholders eligible for the 6/7ths refund on distribution. A holding company typically receives dividends or capital gains from qualifying shareholdings, which can instead qualify for the participation exemption (a full exemption from Malta tax, rather than a tax-and-refund cycle), provided the shareholding meets the participating holding conditions. Structuring correctly between the two depends on the nature of the income and the ownership thresholds involved; we’ve set out the mechanics of the participation exemption in more detail here.

What is “economic substance” and why does it matter for a Malta structure?

Economic substance refers to a company genuinely having the people, premises, decision-making and activity in Malta commensurate with its claimed tax position, rather than existing purely as a paper entity. It has become central to how Malta structures are tested, both by Maltese authorities and by counterparty jurisdictions applying anti-avoidance rules.

Does Malta have double tax treaties that protect against being taxed twice?

Yes. Malta has an extensive double tax treaty network, one of the more developed in the EU, which generally allocates taxing rights between Malta and the counterparty jurisdiction and provides relief mechanisms (exemption or credit) where both states might otherwise tax the same income. Treaty access depends on genuine tax residence and, increasingly, on substance and beneficial ownership tests layered on top of treaty text itself.

How exactly does the 6/7ths refund mechanism work in practice?

When a Malta company distributes profits from trading income to its shareholders, those shareholders can apply for a refund equal to 6/7ths of the Malta tax paid by the company on that income. The company pays the full 35% first; the refund is claimed by the shareholder afterward, following the distribution, so timing and cash-flow planning around the distribution and refund claim matter as much as the underlying rate.

What are DAC6, CRS and FATCA, and do they apply to my structure?

DAC6 requires reporting of certain cross-border and related party tax arrangements bearing specified “hallmarks” to the Maltese tax authorities. CRS and FATCA are separate automatic information exchange regimes under which Maltese financial institutions report account and beneficial ownership information to other tax authorities. Whether any of these are applicable depends on the structure and who holds interests in it. This may be assessed at the structuring stage.